Part 2 : How Expensive is a Reverse Mortgage?

Part 2 : How Expensive is a Reverse Mortgage?

Yesterday I addressed the origination fee of a reverse mortgage. Today I will address the other major cost in acquiring a reverse mortgage, the MIP (Mortgage Insurance Premium).

First, know that all costs of a reverse mortgage are built into the loan and are not out of pocket expenses.

The mortgage insurance premium (MIP) for the HECM reverse mortgage is paid in two ways. The initial MIP cost is 2% of the homes appraised value. During the life of the loan you will also pay an MIP payment of one half of 1 percent of the loan balance each year to support the benefits.

Is this expensive?

To answer this question, just like any insurance policy, you need to look at the benefits you are gaining from the cost.

Benefits:

1) Guaranteed monthly payments for life, no matter how long you live. (If you take the tenure payment option on this loan.)
2) Every $ that you are entitled to in this program, you get. It is all backed by the government

3) Your estate is never liable for any excess debt from the reverse mortgage other than the asset of the home itself. If the market drops, they can walk away from the debt.

4) Your estate gets 1 year without any payments to settle the home and reverse mortgage.

5) You do not have any mortgage payments for life.

So lets assume that the home is $250,000. This means that the MIP is $5,000 to begin the loan. An additional amount of one half of 1 percent of the loan balance is added to the loan each year to cover the additional risk. Be perfectly clear that these fees are part of the loan itself and do not come out of your pocket.

So to answer the question, “Is a reverse mortgage too expensive?”, answer this question. Can you buy an annuity, an insurance policy, or any other financial instrument that will guarantee income, limit liability, and honor your estate for this price?

NO

Bob

bob@az62.com

www.az62.com

623-214-6663